Is car allowance included in termination payments?

For some companies, when employees take annual leave they are paid base salary plus car allowance. But what happens to that car allowance when it comes time to calculate termination payments.

Do we still pay this allowance when calculating leave entitlements on termination? 

Is there a car allowance on termination pay?

The National Employment Standard with respect to annual leave provides that an employee is to be paid any accrued balance of annual leave on termination of employment, by either party.  

There is no specific formula prescribed by the standard which is the basis for calculating pro rata annual leave. If the employment ends and an employee has untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

Ordinary pay on termination

The Fair Work Act (s90(2)) provides a separate definition of ordinary pay when accrued annual leave is paid on termination of employment to that when annual leave is taken as leave. It provides that on termination of employment, an employee is entitled to receive a payment in respect of any untaken paid annual leave. The payment will be equivalent to the amount the employee would have been paid if annual leave had been taken.

This would therefore include payments such as annual leave loading (where provided by the applicable modern award or enterprise agreement), shift penalties and rostered overtime. See Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCA 136; and Ryan v Whitehaven Coal Mining Company Pty Ltd NSWLC (26 July 2013) (unreported). 

If the car allowance is payable when an employee is taking annual leave, it should also be included in the annual leave payment on termination.

In the case of a novated motor vehicle lease, it is presumed ‘equivalent payment’ also includes other separately identifiable amounts payable under an employee’s contract of employment that are subject to Fringe Benefit Tax (FBT). This could include the monetary value of the novated lease or the agreed monetary value of a fully maintained company-provided motor vehicle.

A motor vehicle provided by the company as a “tool of trade” however, would not be included in the employee’s ordinary pay for purposes of annual leave pay on termination. The amount representing the employer component of FBT on the employee’s payment summary may provide an agreed value for a company motor vehicle and/or a company mobile phone respectively.